Question

* More Info Prepaid insurance, beginning, $400. Payments for insurance during the period, $2,600. Prepaid insurance, ending, $300. b. Interest revenue accrued, $2,000. c. Unearned service revenue, beginning, $1,700. Unearned service revenue, ending, $600. d. Depreciation on building, $5,200. e. Employees' salaries owed for two days of a five-day work week; weekly payroll, $16,000. f. Income before income tax, $22,000. Income tax rate is 35%.

Answer 1

Part-1)

#	Particulars	Debit	Credit
a	Insurance Expense (400 + 2600 - 300)	2,700
	Prepaid Insurance		2,700
b	Interest Receivable	2,000
	Interest Revenue		2,000
c	Unearned Service Revenue (1,700 - 600)	1,100
	Service Revenue		1,100
d	Depreciation Expense	5,200
	Accumulated Depreciation		5,200
e	Salary Expense (16,000 * 2/5)	6,400
	Salary Payable		6,400
f	Income Tax Expense (22,000 * 0.35)	7,700
	Income Tax Payable		7,700

　

Part-2)

Net income understated by omission of
Interest revenue	2,000
Service revenue	1,100
Total understatement		3,100
Net income overstated by omission of:
Insurance expense	2,700
Depreciation expense	5,200
Salary expense	6,400
Income tax expense	7,700
Total overstatement		22,000
Overall effect — net income overstated by		18,900